Tim Hortons

A lot of US econobloggers are talking about the Tim Hortons-Burger King merger. But all they seem to talk about is corporate tax rates.

I think they are missing the big picture. The big picture is here:

[I can't figure out how to embed that picture in Typepad. That's okay, I did - SG]

To my eyes, it looks a lot like that satellite picture of North and South Korea at night, only the dots of light are in red, and North and South are switched.

Now I really like travelling in the US. And the US is a great country. And in many ways the US is a very advanced country. (You hear a "but" coming, don't you.)

But the US is sadly lacking in Tim Hortons.

(In July I drove for two days across Minnesota, Wisconsin, and Michigan, without seeing a single Tim Hortons. We were desperate by the time we re-crossed the border at Sault Ste. Marie.)

I mean, if you were talking about the economics of Nixon going to China, and China opening up for foreign investment, would you spend your whole time talking about relative corporate tax rates in the US and China? Of course you wouldn't!

This is primarily a question of development economics.

Can't we at least get a decent class analysis of this question? There are two sorts of people: Starbucks people; and Tim Hortons people. And this class distinction is far more important than anything based on superficial differences like income and occupation. As a Tim Hortons person, who feels deeply ill-at-ease in a Starbucks, and who does not understand the menu, I cannot stop myself asking the "barista"(?) the subversive question: "Can I have a small double-double please?"

Is all the economic analysis of this merger being done by SWPL Starbucks people, who can only see their own class perspective?

(I am only half-joking.)

Comments

[rjs]

to embed something like that map, start by hitting the F12 key, then search out the portion of code you need...(& no, i couldnt do it either)

[dlr]

I don't think Starbucks is North Korea's dark version of Tim Hortons. This, which I'm sure will also draw hockey jeers, is really the better comparison:

http://bostinno.streetwise.co/2012/06/28/dunkin-donuts-map-massachusetts/picture-2-206/

Plus, Tim Hortons was owned by a genuine American company from 1995-2006 (Wendy's). So this is more like Nixon returning to China for a vacation post-impeachment. Burger King isn't even an American company in many important senses. Its private equity owners and operators are Brazilian. Post-merger well more than half its business will be ex-US.

[Nick Rowe]

Google seems to be telling me that Dunkin Donuts has all but disappeared from Canada. I wonder why?

I think there's one left in Montreal, but the one close to me in Gatineau seems to have closed.

[Bob Smith]

Well there's no doubt that there is a tax motive to this. Interestingly, despite the claims of the Harper government, it's not driven by lower Canadian corporate tax rates so much as the long-standing Canadian foreign affiliate regime which permits Canadian companies to repatriate foreign profits from active businesses in some countries (typically countries with whom we have tax agreements) free from Canadian tax. In contrast, in the US, repatriated profits are fully taxed. Surprise, surprise, US companies don't repatriate their profits. For a company like Burger King, with operations in 100 companies, Canada is a far better jurisdiction than the US.

This has eluded most of the commentary on the issue. There was letter to the editor in today"s Star (granted, it was the Star) criticizing this deal on the basis that income should be taxed where it is earned. The author likely didn't realize that, under the Canadian regime, that's what happens, and under the us regime, it doesn't (everything gets taxed in the us, no matter where it's earned), so that the author of the letter actually agreed with the result of this deal.

That said, I think this is a deal that makes a ton of sense from a business perspective. BK has the potential global reach that would take decades to build, while TH has been much more successful at intensifying and building out its brand (indeed there have been some suggestions that this is partly a take over of BK by TH, because BK's Brazilian owners want TH's management).

And you're right, there is a large hole in the coffee market for the non Starbucks crowd. McDonald's has been trying to fill that, but a Timmies/BK combination would be a hell of a challenger.

Mind you, at least in the US, you wonder if the non-starbucks people might have a preference for an "American" brand. How many Starbucks people could answer the question "Have you driven a Ford lately?". If so, is the risk that this transaction might taint the "Americanness" of BK such that their core market shifts to Arby's or Wendy's? Or can Tim Hortons be Americanized as a brand? Will see.

[dlr]

Google seems to be telling me that Dunkin Donuts has all but disappeared from Canada. I wonder why?

If that was sarcastic it was well delivered. Dunkin Donuts entered Canada and Tim Hortons treated them like Gretkzky treated Bossy in 1984. They exited whipmering with nothing but a bunch of franchisees suing for not being clear in the offering circulars about how nobody was going to show up to the stores. On the other hand, Tim H has struggled as well with its US expansion and they have probably invested/lost upwards of $700 million trying to get some workable scale. There was even some hedge fund activism in THI a short while ago to get them to stop their US expansion. They have shown some modestly positive signs recently, but not to a degree that near moving the need to even breakeven. These US/Canada border crossings can be difficult. Target is in the middle of getting obliterated with its recent head first dive into Canada and it just cost the CEO his job.

[Phil]

A friend and I have discussed the idea of opening a Tim Hortons in Hollywood, FL.

Start where Canadians gather, and expand outwards! A street kiosk outside every NHL game would also be a good foot in the door.

[Jeremy Fox]

American now living in Canada here, seconding what others have said: Dunkin Donuts is the American Tim Hortons.

[Steve]

It's weird, it's almost as if all Canadians getting worked up about this have done a Stalin and purged the Wendy's ownership from the collective memory.

BK could probably double their UK profit by just adding Timmies coffee and Tim Bits into the location in Charing Cross, you know the one across Trafalgar Square from Canada House :) And that's just from my Canadian wife drinking there when we go back to visit family next year sorry have to do this http://instantrimshot.com/

Seriously though (as long as you trust my anecdata), the UK should be ripe for the taking by Tim Hortons according to my parents and niece when they came to visit us here in Calgary last year.

Oh and by the way the new dark roast is terrible.

[Nick Rowe]

Steve: The UK is even more of an LDC than the US. In May we drove from Hertfordshire to mid-Wales, and didn't see a single one. Really thought we saw an "On The Run" sign in a petrol station in the Cotswolds, but it turned out to be something quite different, just ripping off a facsimile of the Tim Hortons sign. Quite sure the Brits would go for it in a big way, because there's nothing like it over there. (They would really go for Poutine too, but that's perhaps off-topic.)

[Phil]

To me,

Tim Hortons:Dunkin Donuts :: McDonald's:Burger King.

Tims is a little classier and family-oriented. Dunkin is a little more stereotypically lowbrow. The coffee is similar style, but Tim Hortons is better and they take it more seriously.

In England, I've found the Americano at Costa to be the closest substitute for Tims. The one at the other chain -- Nero? -- isn't the same. Um, maybe I have those backwards, it's been three years.

[Lorenzo from Oz]

In Australia, Burger King is called Hungry Jack's (because there was already a local Burger King).

As for blotting out American ownership of Tim Horton's, how often do Americans remember that a Japanese company (Sony) own a fair chuck of Hollywood?

The ambition of the American Left to be more like those cool Europeans is coming true--now they can also whine about tax exiles ...

[Max]

Lots of Tim Hortons in the Detroit area. Because it's the largest U.S. city which is close to Canada?

[Determinant]

I'm a hick coffee snob. I have my own coffee grinder at home and use a plunger pot. I "roll my own", to mix a metaphor. Mind you, I live in an area with no Starbucks and I won't pay for Tims. Besides, I like it strong. 2.5 tablespoons of freshly-ground coffee per cup, please!

And as a genuine lefty and card-carrying NDP member, I can't be bothered to do a class analysis of this. Sometimes business is just business, and this is one of those times.

Though dlr is right, the US/Canada Border is a tough crossing in retail, much to many executives surprise. The two countries just don't have the same tastes and that's everything in retail. Walmart has had nowhere near the success at grocery retailing in Canada that it had in the US as there were already large, established "hard discount" chains like Fresh Co. and No Frills operating as divisions of national retailers.

[Jacques René Giguère]

"Start where Canadians gather, and expand outwards! "
Which is what McDonald's did with poutine. Start with Québécois then with Canadians. Poutine is now slowly oozing its way around the world.

[Nick Rowe]

Max: "Lots of Tim Hortons in the Detroit area. Because it's the largest U.S. city which is close to Canada?"

My first thought, when I saw that on the map, was that the pattern of US locations followed the Canadian voyageur routes heading to Florida and Winter sun. But when I zoomed in, my theory didn't work very well.

Phil: "In England, I've found the Americano at Costa to be the closest substitute for Tims."

But the very fact that they call it an "Americano" tells us that something is horribly wrong, culturally. I first came across the word used in that way in Havana, where it made perfect sense. To use that same word in England is just pretentious, and conveys the culture of SWPL Starbucks rather than Tim Hortons.

[John]

Nick, I agree...

I used to live in Cincinnati, OH - where there are no Tim Horton's - very close to a Dunkin Donuts, with some Starbucks nor far away. In Southwest Ohio there seems to be a "Tim Horton's line" above which one finds Tim Horton's, and below which there are none. Living below that line was painful; I would make trips north up I-75 to Monroe, where the southernmost Tim Horton's in southwest Ohio is located.

Now I live above the line. A small city, but with 2 Tim Horton's easily accessible. Columbus, OH, is above the line also, and it was while living in Columbus that I became a loyal Tim Horton's customer - there are Tim Horton's all over Columbus.

Tim Horton is relatively expensive - more expensive for some things than Dunkin' Donuts, but I don't think much about the expense. It is, indeed, a class and/or culture thing.

My opinion of the BK story totally reversed when I heard that it was Tim Horton's that was involved, and it makes perfect sense to me now...

[Jacques René Giguère]

And there is the cultural North-South divide of I-70. Go south from Dayton airport through the I-75 interchange or OH-4 and watch the appearing of Bob Evans
http://www.bobevans.com/
serving grits and chicken fried steaks...

[mike smitka]

After being stuck in Canadian airports for 24 hours on my way back to the South from Japan, I'm less enamored of TH. But then while I picked up an Ontario accent growing up in Detroit (or so I'm told) TH hadn't spread that far. But yes, better that SB [so omnipresent that it's merely "suta" in Japanese], as is Dunkin' Donuts. (Krispy Kreme ... please, let's not go that far.)

More seriously, some types of retail do seem to travel. While Walmart owns the Seiyu chain in Japan, they paid billions up front and then spent billions trying to get it into the black. (And I wonder, because their Japan operations (400 stores) are referenced de minimus in their financial statements.) Meanwhile Carrefour and Tesco pulled out of Japan, I can't remember if the German Hypermarkt and Aldi ever made a serious attempt. Walmart has flopped in Germany, Korea and elsewhere. Supermarkets don't travel, perhaps because the format is easy to mimic and the local competition has already filled the core niches and gotten pretty good at product strategy, operations/IT and locational choice, all things where Walmart at one time stood out, when they were only rural US.

But ... franchises are a different story. The model for food franchising was set by McD's and it continues to be significantly larger than any others. KFC is big, too. Then there's Mister Donuts, see Wiki for their unusual relationship to DD. That and two rival coffee chains (Dotour and Excelsior) were my hangouts of choice, since I never hit it off with any of the local independents on my last sabbatical in Japan. Those two, which do not feature barristas but do feature light foods, are a mix of company stores and franchises. And the franchises! – there's a huge variety, some with footholds elsewhere, some that have expanded overseas or in the case of 7-11, Japan's most successful retailer. (The US 7-11 is Japanese owned, their former Japan affiliate purchased them after a failed LBO, but they and competitors are now everywhere in Asia.)

The topic is fun, I wrote a long working paper focusing on Japan's retail revolution, but I've not figured out how I might repackage it for a journal (length and richness).....now as to Canada, I need to get back, but my wife & I forgot to pull out our passports this summer, and while we'd probably be welcome in Canada, the US is nasty even to its own citizens.

[Greg Tkacz]

Dunkin' Donuts used to be the dominant coffee & donut chain in Quebec, but it started losing market share as soon as Head Office ordered franchisees to stop serving baked beans and pork fat for breakfast, thereby breaking the First Commandment of Marketing: "Thou shalt know thy market".

[Jacques René Giguère]

Not just pork fat but cretons
http://en.wikipedia.org/wiki/Cretons

(it's not tv, it's HBO...)

[RB Holbrook]

I have lived for much of my life in Minneapolis which, according to the old Spy magazine, is the most Canadian city in the US. When my family visited Thunder Bay a few years ago, I insisted we stop at Tim Horton's. I thought it would be like home away from home for us.

Suffice it to say, everyone was less than impressed (and we aren't Starbucks people). After that, I was no longer allowed to suggest places to stop.

[Nick Rowe]

Finally, someone looks at the big picture

BTW Greg: Tim Hortons sells toast in Quebec, but not in Ontario, AFAIK. And it's only slowly introducing steeped tea to Quebec, while it has been in Ontario for some time. Yep adjust to local markets.

[Mark_dowling]

For anyone visiting Ireland, Tim products can be found in some gas stations and small supermarket (Esso and Spar I think).
http://www.yelp.ca/biz/tim-hortons-dublin-3

[Matthew]

I'm not sure all of the US Tim Horton's locations are represented in that graph. There was a Tim Hortons in Ithaca, NY where I lived for grad school, and another Tim Hortons nearby in Cortland, NY where I visited once. Neither seems to be in the graph. I was a debator in undergrad, so I traveled to other universities a lot for debate tournaments, and we encountered Tim Hortons plenty of times at these other US college towns. Since I've only lived in places with Tim Hortons around (Ohio and New York), and found them at several college towns while at debate tournaments, I assumed they were widespread in the US.

But, my experience seems to be different than your experience traveling in the US, and maybe there's an explanation: perhaps Time Hortons is mostly just in college towns in the US. This explains the weird concentration in Ohio, since Ohio happens to have the highest concentration of colleges and universities in the US (a weird legacy of having been the frontier at the time of the US revolution, which made it the focus of early settlers who thought the thing most-needed to tame the wilderness was higher education.)

[Tom Brown]

Nick, I'd never heard of Tim Horton's until now. (You hear a "but" coming, don't you.) ... But, this was still very amusing! Thanks. Loved the N. Korea comparison.